Default interface methods are only supported starting with Android 7.0 (Nougat)

I upgraded to Android Studio 3.1 and I'm getting the following error:

Default interface methods are only supported starting with Android N (--min-api 24): void android.arch.lifecycle.DefaultLifecycleObserver.onCreate(android.arch.lifecycle.LifecycleOwner)

Message{kind=ERROR, text=Default interface methods are only supported starting with Android N (--min-api 24): void android.arch.lifecycle.DefaultLifecycleObserver.onCreate(android.arch.lifecycle.LifecycleOwner), sources=[Unknown source file], tool name=Optional.of(D8)}

Here is my Gradle configuration:

compileSdkVersion 27
//buildToolsVersion '27.0.3'
defaultConfig {
    minSdkVersion 16
    targetSdkVersion 27
     multiDexEnabled true
     //...
   }

As you can see, I am targeting 27 which is already ahead of 24 that it's complaining about. What exactly should I do to fix this? If I change to 1.8 Java, won't I be missing a lot of customers? Why was I not getting this error before I upgraded Android Studio?

I do not know if this is about the LifecycleObserver class I recently put in. It was in Kotlin and now I changed it to Java, but I still get the same error after cleaning the project:

public class LifeCycleAwareObserver implements LifecycleObserver {

    @OnLifecycleEvent(Lifecycle.Event.ON_STOP)
    public void  onAppBackgrounded() {
        AnalyticsUtils.trackStartSession(true);
    }

    @OnLifecycleEvent(Lifecycle.Event.ON_START)
    public void onAppForegrounded() {
        AnalyticsUtils.trackStartSession(false);
    }
}

How can I trace where the error is coming from so I can fix it?

Here are my version dependencies:

project.ext {

        firebase_version = '12.0.0'

        supportlib_version = '27.0.2'

        room_version = '1.0.0'

        espresso_version = '3.0.1'

        archLifecycleVersion = '1.1.1'
    }

As CommonsWare mentioned, for reference add this inside the android {...} closure in the build.gradle for your app module (app level) to resolve the issue:

android {
...
  compileOptions {
        sourceCompatibility JavaVersion.VERSION_1_8
        targetCompatibility JavaVersion.VERSION_1_8
    }
...
}

You should use Java 8 to solve this. Based on the Android documentation, you can do this by clicking menu File → Project Structure.

And change Source Compatibility and Target Compatibility.

And you can also configure it directly in the app-level build.gradle file:

android {
  ...
  // Configure only for each module that uses Java 8
  // language features (either in its source code or
  // through dependencies).
  compileOptions {
    sourceCompatibility JavaVersion.VERSION_1_8
    targetCompatibility JavaVersion.VERSION_1_8
  }
}